One bright side to an economic recovery moving slower than molasses is that sluggish growth has kept truck supply and demand in rough balance during the last four years. The capacity crunch much feared in the recession’s wake never caught up with shippers, despite shrinking fleets at the largest trucking companies.
With the economy again showing signs of weakness as summer approaches, shippers aren’t feeling much of a pinch, but they’re concerned about the impact of new driver hours-of-service rules and higher carrier operating costs. They fear even a slight pickup in demand could squeeze capacity and transportation budgets.
Shippers attending the 2013 NASSTRAC Shipper Conference and Transportation Expo in Orlando last month mentioned little trouble finding a truck when they need one, and at a price they’re willing to pay. But they have to work harder to get that truck, and they’re more likely to find it through a logistics provider or broker.
At J.B. Hunt Transport Services, Shelley Simpson believes a stronger recovery will pressure shippers. “You’re starting to see pockets, particularly where seasonal demand happens, where people are having to look for alternative modes of transportation,” the president of Hunt’s Integrated Capacity Solutions division said.
She predicts even more conversion of truckloads to intermodal rail and greater use of third-party logistics companies and smaller trucking operators as capacity at the nation’s largest trucking companies stagnates or slips further.
The key issue, Simpson said, is that freight demand has increased since 2009, but truck capacity hasn’t. “If you look at the number of Class 8 trucks on the road, you really have to go back to 2004 to get the same number of trucks as at the end of 2011.” And the largest motor carriers, she said, are still cutting capacity.
Supporting that argument is The Journal of Commerce Truckload Capacity Index, which shows available capacity at a $10 billion group of large carriers is now nearly 17 percent below its peak in late 2006. The truckload operators tracked by the JOC, which include J.B. Hunt’s truck division, reduced the number of tractor-trailers they operate by 2.3 percent year-over-year in the fourth quarter. Their combined capacity was down 2.6 percent from 2010, 3.7 percent from 2009 and 9.7 percent from 2008.
At J.B. Hunt, “We used to say we were in love with our trucks. That’s product selling. We have a truck, you have a need, surely we can put the two together,” said Simpson, who spoke on a NASSTRAC CEO panel. “But today you have to build your business around what the needs of your shippers really are. You can’t be in love with a specific product” or asset, she said. “We used to have a top-down approach to the way we build capacity, but now it’s a bottom-up approach.”
The multimodal transport operator decides where to add capacity based on analyses of customer bids that optimize price and shipping across all modes and services, including intermodal, brokerage and dedicated trucking. “That’s driving the planning process, and we have to be more fluid.” That means making more frequent, short-term decisions on where to add equipment and assets.
For example, J.B. Hunt cut the tractor count at its truckload division 22 percent year-over-year to 2,011 trucks. However, the company boosted its intermodal drayage fleet by 14 percent to 3,712 units and its dedicated fleet by 13 percent to 5,495 tractors.
From 2006 through 2012, J.B. Hunt chopped its truckload fleet by more than half, while more than doubling its intermodal fleet. The truckload division, once the core of the company Johnny Bryan Hunt Sr. founded with five trucks in 1969, accounted for only 8 percent of its revenue, $102 million, in the first quarter. Sixty-two percent of Hunt’s $1.3 billion first quarter revenue, or $796 million, came from intermodal. Dedicated contract services represented 22 percent of revenue, $279 million.
Simpson’s Integrated Capacity Solutions division increased load volume 47 percent in the quarter, pushing revenue up 26 percent to $122.3 million. That helped Lowell, Ark.-based Hunt, which SJ Consulting Group ranks as the third-largest U.S. trucker, increase total revenue 11 percent and boost profit 8 percent to $73.3 million.
J.B. Hunt’s realignment of capacity reflects the company’s view of a changing transportation marketplace. “We see shippers moving more into the 3PL space and into brokerage,” Simpson said. “Smaller and medium-sized carrier capacity is really coming into play and becoming a more viable option.”
The intermodal wave J.B. Hunt helped launch through its agreement with Santa Fe Railway in 1989 is far from cresting, Simpson said. “There are somewhere between 7 million and 11 million shipments moving over the highway on an annual basis that should be moving on the railroads,” she said. Shippers and truckload carriers will continue to convert loads to intermodal as trucking costs rise and truck drivers become harder to hire and keep on payrolls, she said.
“We believe the large (truckload) carriers will be very focused on shorter lengths of haul where they can run a regional network that is consistent, and that would be in areas where intermodal is not a good option,” Simpson said. “Any seasonal surge or any longer length of haul out-of-pattern shipments, we believe over time those will move to the smaller carrier community and primarily through a 3PL.”